Calculate default risk premium?

Question

Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 6.75%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

Answer 1

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r (corp)= rf (risk free rate, in this case 5.30%) + lp + drp+ mrp,

so

6.75= 5.30 + 0.25 + drp + 1.15

solve for drp= 0.05%

remember that the maturity risk premium is already built into the T-bond rate as quoted.

Answer 2

Default Risk Premium

Source(s): https://shrinks.im/a8d0E

Answer 3

Risk Premium Formula

Source(s): https://shrink.im/a9ht9

Answer 4

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RE:

Calculate default risk premium?

Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 6.75%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk...

Source(s): calculate default risk premium: https://shortly.im/7f8RK

Answer 5

what if there is no mrp given ...then how would you solve it..